HL Economics

Liberia is an example of a failed economy, so examining what went wrong can be used as an example in the exam.

First is corruption. The government took over and let war and chaos reign. They also took over land that was used for agriculture and gave it to war lords whom did not use it efficiently, hurting the main export of the economy.

Because the main focus of the people of the economy was war, there are may social barriers. People are not inclined to save or invest, as there is a good chance they wont survive to use it. Instead, they will spend money on immediate gratification goods or weapons to improve their chances for survival.

Education is also lacking, as can be seen by ignorant practices like war and cannibalism. Education may help not only create a better work force, but may improve cultural barriers to growth as well

There are two main types of aid: humanitarian and development. Humanitarian Aid is a more immediate relief to living conditions, such as providing health care, food, water, clothes, ect. It helps people in developing economies to get the bare essentials they need to survive. Developmental aid is a longer term form of aid. This aid helps to improve infrastructure, train workers to be more efficient, or donate money to projects that may boost the economy. This aid helps to a provide growth in the long run.

Aid may be very beneficial in helping a developing economy grow. It helps provide health care so that people live longer, and trains them by providing an education so that they be better employed. Countries may also provide more updated technology and capital so that firms in the country can be more efficient and help boost and stimulate the economy.

However, Aid has more disadvantages than advantages. Often aid from other countries deters the country from improving systems internally. They therefore develop a dependence on the provided medicine, education, and money. if it stopped the country would not survive. It also can encourage corruption. Sometimes when money is poured into a country, the money will go to an elite group, while the people who need the money become even poorer, worsening the distribution of income and preventing growth. Sometimes funded projects can be unnecessary, and money could be spent better in other areas of development.. For example, the country may build a new school for a developing country, but the children are not getting enough food, therefore cannot perform or even go to school. Also, these projects and aid may in debt a developing country, hindering their growth in the long run.

I did really well on the mock exam I think it converts to a 6 so when the second half of the test is added I think a good predicted score is a 6. I think for revision, at least for now, I’ll do mostly in-class reviewing topic, especially HL ones and look at possible questions.

Its kind of funny reading the comments about what I was marked down for, considering I wrote basically the same format and detail that I always do, except this test I got about half the points. I guess there were a lot issues with my approach to my essay that Dr. Anthony never caught, so I have some things to work on now. I need to use specific examples and label my diagrams as figures 1, 2 , etc., and be more specific with my explanation.

2.) Tariff- a tax place on imported goods to decrease demand by increasing the price of a good to product domestic firms and increase government revenue.

3.)

Tariffs

A tariff is a tax on imports, which can either be specific (so much per unit of sale) or ad valorem (a percentage of the price of the product). Tariffs reduce supply and raise the price of imports. This gives domestic equivalents a comparative advantage. As such, tariffs are distorting the market forces and may prevent consumers from gaining the benefit of all the advantages of international specialisation and trade. The impact of a tariff is shown in Figure 1 below.

Figure 1 Impact of a tariff

The tariff has the effect of shifting the world supply curve vertically upwards by the amount of the tariff. The level of imports will fall from QaQd to QbQc. The government will also raise revenue, shown by the blue shaded area. The level of domestic production will increase from 0Qa to 0Qb.

Definitions:

 Factor endowments- factors of production specific country to country that affects which goods and services a country is fit to produce.
 Specialization- a country that had comparative advantage to produce a good produces only that good and trades to get other goods and services.
 Absolute advantage- a country, using the same input factors of production, can produce more of a good than other countries.
 Comparative advantage- a country produces a good at a lower opportunity cost than other countries.
 Free trade- international trade with no barriers (tariffs, quotas, subsidies)
 Tariff- a tax place on imported goods to decrease demand by increasing the price of a good to product domestic firms and increase government revenue.
 Quota- a quantitative limit on the amount of a good that can be imported so that demand increases for domestic goods.
 Subsidy- money paid to firms form the government to off set the costs of production to decrease prices and keep them in the market. (Wheat)
 Voluntary export restraint- an agreement between exporting and importing countries to limit the volume of trade of a good.
 Infant industry argument-says that new industries should be protected form foreign competition until the are large enough to compete.
 Dumping-selling a good in another country below the unit cost of product to push domestic industries out of the market. (China/US poultry)
 Anti-dumping-legislation the protect a economy from dumping (china/US poultry)
 Free trade area- Sovereign countries belonging to a free trade area trade freely amongst themselves but have individual trade barriers with countries outside the free trade area.
 Customs union- In a Customs Union, countries have free trade amongst themselves, as in a Free Trade Area, but they are no longer fully sovereign over trade policy. There will be some degree of standardization of trade policies. They will have a common external tariff (CET), which is applied, to all countries outside the customs union (EU).
 Common market- This trading bloc is a customs union, which has, in addition, the free movement of factors of production such as labor and capital between the member countries without restriction.
 Trade creation- Trade creation is the increased trade that occurs between member countries of trading blocs following the formation or expansion of the trading bloc. This comes about as the removal of trade barriers allows greater specialization according to comparative advantage. This means that prices can fall and trade can thus expand.
 Trade diversion- Trade diversion is the decrease in trade following the formation of a trading bloc as trade replaces trade with low cost non-trading bloc members with relatively high cost trading bloc members.
 World trade organization- an international trade organization that sets rules for global trading and settle disputes between member countries.
 Balance of payments-a record of the value of all the transactions between residents of a country with the world over a year.
 Balance of trade- the measure of the revenue from the exports minus the imports of tangible goods over a year.
 Invisible balance-a measure of the revenue received from exports minus imports of services over a year.
 Current account-a measure of the flow of funds from trade in goods and services, plus net investment income flows (profit, interest, and dividends) and net transfers of money (foreign aid, grants, and remittances).
 Capital account-the buying and selling of assets between countries
 Current account surplus-when revenues from exports of goods and services and income flow is greater than the expenditure on imports over a year.
 Current account deficit- when revenues from exports of goods and services and income flow is less than the expenditure on imports over a year.
 Expenditure-switching policies- policies implemented so switch expenditure from imports to domestic goods and services.
 Expenditure-reducing policies- policies implemented to decrease overall expenditure in an economy including imports.
 Marshall-Lerner condition-depreciation/devaluation of a currency will only improve the current account balance if the elasticity for exports plus the elasticity of demand for imports is greater than one.
 J-Curve-a theory that suggests that in the short term, a fall in the value of a currency will lead to a worsening of the current account deficit before it improves in the long term.
 Exchange rate- the value of a currency expressed in terms of another
 Fixed exchange rate-an exchange rate system where the value of a currency is pegged to another currency, or to an average value of several currencies, or to the value of a commodity such as gold. (China)
 Floating exchange rate- a system where the value of currency is allowed to be determined solely by supply and demand for the currency on the world market. (US)
 Depreciation-a fall in the value of a currency in terms of another
 Appreciation- an increase in the value of a currency in terms of another
 Devaluation- a decrease in the value of a currency in terms of another in a fixed exchange rate system
 Revaluation- an increase in the value of a currency in terms of another in a fixed exchange rate system
 Purchasing power parity theory-under a floating exchange rate system, rate adjust to offset differing rates of inflation between count rue that are trading partner in order to restore the balance of payments to equilibrium.
 Terms of trade- an index that shows the value of a countries average export prices relative to their average import prices.
 Deteriorating terms of trade- where the average price of exports falls to that of imports.
 Elasticity of demand for exports- the measure of the responsiveness to the quantity demanded of exports when there is a change in price.
 Elasticity of demand for imports- t he measures of the responsiveness to the quantity demanded of imports when there is a change in price.